Eurozone collapse 'will send continent into depression’

The collapse of the eurozone would cause a crash that would instantly wipe out
half of the value of Europe’s economy, plunging the continent into a
depression as deep as the 1930s slump, the president of the European
Commission has warned.

José Manuel Barroso issued his chilling warning as France began diplomatic overtures to create a eurozone vanguard, potentially with fewer than the 17 existing members of the single currency.

Mr Barroso said that if the euro area of the 17 member states or the wider

27-country EU broke apart the estimated initial cost would be up to 50 per cent of European gross domestic product. “It would jeopardise the future prosperity of the next generation. That is the threat that hangs over us,” he said.

In a speech in Berlin aimed at tackling any support for a smaller elite eurozone comprised of the EU’s strongest economies, Mr Barroso warned that the consequence of a split would be a million lost jobs in Germany.

The result of such an economic shock would be emergence of extremism and divisions within Europe, the former Portuguese prime minister told his German audience.

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“Populism and sometimes even nationalism raises its head across our continent,” he said. “This is ignoring the global realities as well as our common history that teaches us that this continent is simply too small and too inter-dependent for us to stand apart, to turn our backs to each other.”

Financial markets tumbled yesterday as news broke that MPs in Germany’s ruling Christian Democratic Union party plan to debate a motion next week allowing countries to leave the euro area.

Angela Merkel, the German chancellor, and Nicolas Sarkozy, the French president, first raised the prospect of a country exiting the euro last week when they said that a proposed Greek bailout referendum would be an in-or-out vote on euro membership.

Leaving the currency area is not envisaged under current euro rules.

George Papandreou, the Greek prime minister, scrapped the ballot before stepping down and handing over power to a national unity government.

Reminding Germany of the legacy of the Second World War, Mr Barroso called on Europe’s largest country and economy to “take its responsibilities seriously”.

“Just as the founding fathers had a vision of Europe after two devastating world wars, we must also now act with resilience and with vision towards a Europe that is strong but open,” he said. “Now is Germany’s time to show that it is fighting the cause of a strong, integrated and competitive Europe.”

A eurozone crash, the commission has predicted, would see £10 trillion wiped off the value of the European economy, a catastrophe that would send living standards plummeting to the levels of Latin America. The shock would wipe out all the gains of Europe’s longest period of peace since the Second World War and herald the political chaos and collapse of governments that ushered in Nazism 80 years ago.

“It would be worse than anything our post-war generation can even imagine,” said an official. “Only those Europeans in their late eighties will have any idea about bad it could get.”